Maritime law ‑‑
Collision ‑‑ Limitation of liability ‑‑ Appropriate
unit of limitation ‑‑ Navigational error by lead tug captain,
acting as master of flotilla, causing collision between tow barge and moored
ship ‑‑ Vessels in flotilla belonging to different shipowners ‑‑
Whether limitation of liability provisions in Canada Shipping Act applicable to
limit lead tug owner's liability ‑‑ If so, whether all vessels of
lead tug owner in flotilla should be taken into account in determining extent
of liability ‑‑ Canada Shipping Act, R.S.C. 1970, c. S‑9,
s. 647(2).

The moored ship Rhône
was struck by the barge Widener in the Port of Montréal. They both
sustained damage. At the time of the collision, the Widener was being
towed by four tugs. The Ohio was in front of the Widener, the South
Carolina and the Ste. Marie II were on either side, and
the Rival was at the rear. Of the four tugs, only two, the South
Carolina and the Ohio, were owned by Great Lakes. Captain Kelch, on
the tug Ohio, acted as de facto master of the flotilla. His
navigational errors, compounded by a malfunction of the Ohio's towing
apparatus, caused the collision.

The owners of the Rhône
sued the barge and the tug owners for damaging their ship and North Central,
the owner of the barge, sued Great Lakes for breach of its towage contract.
Great Lakes denied liability in both actions and counterclaimed for limitation
of liability pursuant to s. 647(2) of the Canada Shipping Act. In
the Federal Court, Trial Division, in the action commenced by the owners of the
Rhône, the trial judge apportioned 80 percent of the liability to
Great Lakes, based on the negligence of the South Carolina and the Ohio,
and 20 percent to North Central, based on the negligence of the captain of
the Widener for failing to drop the Widener's own anchor to stop
its slide into the Rhône. In the action instituted by North Central,
the trial judge ordered Great Lakes to pay all of the damages incurred by the Widener.
Great Lakes' counterclaims for limitation of liability in both actions were
dismissed. Great Lakes appealed both decisions. North Central also cross‑appealed
the trial judge's finding of fault against the Widener. The Federal
Court of Appeal confirmed the finding of negligence against Captain Kelch on
the Ohio and against the Widener but rejected the assessment of
fault against the South Carolina, noting that any errors it had made had
been pursuant to orders from Captain Kelch on the Ohio and not any
negligence on the part of those responsible for her navigation. The court
nevertheless maintained the trial judge's overall finding with respect to both
the negligence and the apportionment of liability as between Great Lakes and
North Central. The court also agreed with the trial judge that Captain Kelch
was a directing mind of Great Lakes, at least for the purpose of carrying out
Great Lakes' obligations in relation to the tow of the Widener. As
such, it found Great Lakes was not entitled to limit its liability since the
damage did not occur "without its actual fault or privity".

In this Court,
Great Lakes challenges the denial of its counterclaims to limit its liability
under s. 647(2) of the Canada Shipping Act. These appeals raise
three issues: (1) Is the captain of Great Lakes' tug Ohio a
directing mind of Great Lakes by virtue of the fact that he exercised some
discretion and performed some non‑navigational functions as an incident
of his employment? (2) Does s. 647(2) apply to limit Great Lakes'
liability with respect to errors committed in the navigation of other vessels
within the flotilla not owned by Great Lakes? (3) In the event that Great
Lakes is entitled to limit its liability under the Canada Shipping Act,
what vessels must be taken into account in determining the extent of its
liability?

Held (L'Heureux‑Dubé and
McLachlin JJ. dissenting in part): The appeals should be
allowed. The judgment of the Federal Court of Appeal, in so far as it relates
to Great Lakes' inability to limit its liability under s. 647(2) of the Canada
Shipping Act, is set aside. The unit of limitation for purposes of
s. 647(2) should be the tug Ohio.

Per La Forest, Sopinka, Gonthier,
Cory and Iacobucci JJ.: The collision between the Rhône and the Widener
did not occur with the actual fault or privity of Great Lakes. While Captain
Kelch was the master of the Ohio at the time of the collision,
navigational errors committed by a ship's master, in the course of his duties,
do not in themselves give rise to actual fault or privity on the part of the
shipowner in the absence of a breach of its duty to supervise the management
and navigation of its vessel which is causally linked to the resulting damage.
Further, there was no actual fault or privity on the part of Great Lakes on the
basis that Captain Kelch was a directing mind of the corporation. The key
factor which distinguishes directing minds from normal employees is the
capacity to exercise decision-making authority on matters of corporate policy,
rather than merely to give effect to such policy on an operational basis,
whether at head office or across the sea. While Captain Kelch no doubt had
certain decision-making authority on navigational matters as an incident of his
role as master of the tug Ohio and was given important operational
duties, he did not have governing authority over the management and operation
of Great Lakes' tugs. The totality of the evidence clearly showed that Captain
Kelch was essentially a port captain subject to supervision and direction.
Given Captain Kelch's considerable expertise, he was given additional
responsibilities, including some non‑navigational functions, but they do
not denote delegation to him of the governing executive authority over the
management and supervision of Great Lakes' fleet. This authority remained with
his superior. The fact that his superior may have been lax in his supervision
of Captain Kelch does not alter the fact that Kelch was essentially a servant of
Great Lakes. Finally, it was not out of the ordinary practice for the captain
of the lead tug to act as master of a flotilla. Arranging for additional tugs
was also a component of the exercise of navigational responsibilities. In
fact, Captain Kelch's extensive authority in navigational matters was not
unusual in the trade. The discretion of a master in the performance of his
assigned role is a wide one that generally extends to all acts that are usual
and necessary for the use and employment of a ship. A master's discretion in
navigational matters does not derive from delegation of central authority but
from tradition and necessity.

Section 647(2) of
the Canada Shipping Act is applicable to limit Great Lakes' liability.
Under s. 647(2)(d)(ii), the owner of a ship may limit its liability
for damage caused to another vessel through "any other act or omission of
any person on board that ship". Great Lakes, as owner of the Ohio,
may thus limit its liability since the cause of the collision consisted of acts
or omissions of Captain Kelch on board the Ohio. Interpreting
s. 647(2) in this manner to limit Great Lakes' liability accords not only
with the clear words of the statute but also with the purpose underlying this
section -- namely, removing the threat of unlimited liability to a shipowner.

All the vessels
within a flotilla belonging to an impugned shipowner need not be taken into
account in determining the extent of that shipowner's liability. The intent of
s. 647(2) of the Canada Shipping Actis to limit liability for
navigational errors according only to the tonnage of those vessels causing the
alleged damage. Apart from the vessel responsible for the overall navigation
of a flotilla, only those vessels of the same shipowner which physically caused
or contributed to the resulting damage form the unit for which liability is
limited. Here, the appropriate unit of limitation under s. 647(2) is the
tonnage of the tug Ohio alone. The South Carolina was absolved
of any fault. Only the Ohio and the Widener were found to have
been negligent. It does not appear from the findings of the courts below that
the South Carolina physically contributed to the collision in any
manner. The resulting damage to the Widener and the Rhône would
have arisen notwithstanding the South Carolina's role. In light of
these facts, the South Carolina cannot be held to be a
"guilty" vessel or part of the "wrongdoing mass". It would
be stretching the principles of causation beyond their proper limits to hold a
vessel not physically causing the impugned damage nor responsible for the
navigation of the vessel which in fact physically caused the damage to be part
of the "wrongdoing mass".

Per L'Heureux‑Dubé and
McLachlin JJ. (dissenting in part): Both the Ohio and the South
Carolina should be considered in determining the amount of the limitation
of liability under s. 647(2) of the Canada Shipping Act. In cases
of navigational error affecting the conduct of a flotilla, all the vessels
owned by the party responsible for the error which are affected by the error,
whether involved directly in the accident or contributing causally to the
accident, should be considered for purposes of determining the maximum
liability of that party.

This conclusion
accords with the traditional Canadian "aggregate tonnage" approach,
an approach compatible with the wording and purpose of s. 647(2). There
is no requirement in s. 647(2)(d)(i) that the ship itself have been
"negligent", nor that the negligent navigator have been on board the
ship which is used for purposes of the limitation. All that is required is
that there have been an act or omission in relation to the navigation or
management of a ship. This language is broad enough to encompass the
misdirection of a tow, and thus supports the Canadian approach that, in the
context of this case, the tonnage of both tugs owned by Great Lakes should be
considered for purposes of determining the limitation on liability. The fault
of misnavigation of a flotilla cannot realistically be confined to a single
vessel since it affects all the vessels which are involved in directing the
barge. The fact that the navigator happens to be standing on one vessel or the
other is incidental; what is essential is the direction which caused the
various vessels to act as they did. Here, the navigation mistakes caused all
the tugs, including the South Carolina, to move the barge too quickly.
That movement, exacerbated by the mechanical malfunction on the Ohio,
caused the collision. The South Carolina thus physically contributed to
the collision and the loss. Finally, the policy basis of the enactment of
statutory liability limitations for shipowners, including the limitation in the
Canada Shipping Act, is the promotion of shipping by limiting the potentially
ruinous risk that would otherwise be faced by shipowners. A shipowner's
potential liability is limited to a value based on the assets which have been
devoted by the shipowner to the operation in question. The owner's assets
employed in the operation being higher, the amount of the limitation should
proportionately be higher, if the purpose of the section is to be respected.

Section 647(2) is
an extraordinary provision, operating in derogation of the usual rights of
recovery for negligence causing damage to others. Unless it is clear that the
limitation should be reduced to a portion of the owner's assets involved in the
collision, all the assets should be considered; the courts should derogate from
the usual rights of recovery only to the extent that the language and the
purpose of the provision clearly so require.

The judgment of La
Forest, Sopinka, Gonthier, Cory and Iacobucci JJ. was delivered by

Iacobucci
J. -- These appeals
require this Court to consider the limitation of liability provisions within
the Canada Shipping Act, R.S.C. 1970, c. S‑9, allowing a shipowner
to limit its liability for damages caused to other vessels occurring without
the shipowner's actual fault or privity. More specifically, this Court must
determine whether the appellant is entitled to limit its liability for the negligence
of its employee in directing the navigation of a flotilla and, if so, the
appropriate unit of limitation.

I. Facts

On November 7,
1980, the moored ship, Rhône, owned by the respondent Vinalmar S.A.
("Vinalmar"), was struck by the barge, Peter A.B. Widener
("Widener"), at the Port of Montréal. The Rhône
sustained damages in the agreed amount of $88,357.89, while the damages to the Widener
were set at $49,200.

The Widener,
owned by the respondent North Central Maritime Corporation ("North Central"),
is a "dumb" barge, so called because it relies on tug boats for its
movements. At the time of the casualty, the Widener was commanded by
Captain Lyons and was being towed by four tugs. Two of these, the South
Carolina and the Ohio, were owned by the appellant, Great Lakes
Towing Company ("Great Lakes"). Two others, the Ste. Marie II
and the Rival were owned by the respondent North Central, and McAllister
Towing & Salvage Ltd., respectively.

The towage of the Widener
had been arranged through an oral contract between North Central and Great
Lakes and involved its towage from Duluth, Minnesota to the Port of Montréal.
Captain Kelch, master of the Great Lakes' tug Ohio, acted as de facto
master of the flotilla.

On the day of the
collision in question, the Ohio was in front of the Widener, the South
Carolina and the Ste. Marie II were on either side, and the Rival
was at the rear. Owing to navigational errors made by Captain Kelch relating
to the speed at which the flotilla was travelling and the point at which they
turned around St. Helen's Island and proceeded up river against the St. Mary's
current, the Widener began to move off course as the flotilla entered
the Port of Montréal. The tugs attempted to compensate for this but the Ohio's
towing apparatus malfunctioned and the Widener began to drift towards
the Rhône. Despite attempts to correct the Widener's angle of
drift, the Widener collided with the Rhône.

As a result of this
mishap, two actions were commenced. In the first, the owners of the Rhône,
the respondent Vinalmar, sued everyone involved ‑‑ the barge owner
and tug owners ‑‑ for damaging their ship. In the second, the
owners of the Widener, the respondent North Central, sued the appellant
Great Lakes for breach of its contract of towage. Great Lakes denied liability
in both actions and counterclaimed for limitation of liability pursuant to s.
647(2) of the Canada Shipping Act.

The two actions were
joined for trial. In the action commenced by the owners of the Rhône,
Denault J. apportioned 80 percent of the liability to Great Lakes, based on the
negligence of the South Carolina and the Ohio, and 20 percent to
the respondent, North Central, based on the negligence of Captain Lyons,
captain of the Widener, for failing to drop the Widener's own
anchor to stop its slide into the Rhône. In the action instituted by
North Central, Denault J. ordered Great Lakes to pay all of the damages
incurred by the Widener. Great Lakes' counterclaims for limitation of
liability in both actions were dismissed.

Great Lakes
appealed both decisions. North Central, the owners of the Widener, also
cross‑appealed the trial judge's finding of fault against the Widener.
Although the Federal Court of Appeal disagreed with certain findings made by
Denault J., it nevertheless maintained his overall finding with respect to both
the negligence and the apportionment of liability as between Great Lakes and
North Central. It agreed with Denault J. that Captain Kelch was a directing
mind of Great Lakes, at least for the purpose of carrying out Great Lakes'
obligations in relation to the tow of the Widener. As such, it found
Great Lakes was not entitled to limit its liability since the damage did not
occur "without [its] actual fault or privity".

As both appeals to
this Court involve the same parties, facts, issues, and reasons in the courts
below, I propose to deal with both through a single set of reasons. In both
actions, the appellant, Great Lakes, challenges the denial of its counterclaims
to limit its liability under s. 647(2) of the Canada Shipping Act
submitting that Captain Kelch was not a directing mind of the company. It
therefore contends that it should be entitled to limit its liability on the
basis of the tonnage of the tug Ohio. However, if this Court finds the
courts below erred in holding the resulting damage to the Widener and Rhône
did not occur "without [the] actual fault or privity" of Great Lakes,
the respondents submit that s. 647(2) is of no avail to Great Lakes in any
event or, alternatively, that liability should be limited according to the
combined tonnage of its tugs, the Ohio and South Carolina.

II. Relevant Statutory
Authority

Canada Shipping Act, R.S.C. 1970, c. S‑9

647. . . .

(2) The
owner of a ship, whether registered in Canada or not, is not, where any of the
following events occur without his actual fault or privity, namely,

. . .

(d) where
any loss or damage is caused to any property, other than property described in
paragraph (b), or any rights are infringed through

(i) the
act or omission of any person, whether on board that ship or not, in the
navigation or management of the ship, in the loading, carriage or discharge of
its cargo or in the embarkation, carriage or disembarkation of its passengers,
or

(ii) any
other act or omission of any person on board that ship;

liable for damages
beyond the following amounts, namely,

.
. .

(f) in
respect of any loss or damage to property or any infringement of any rights
mentioned in paragraph (d), an aggregate amount equivalent to 1,000 gold
francs for each ton of that ship's tonnage.

649. (1) Sections 647 and 648
extend and apply to

.
. .

any
person acting in the capacity of master or member of the crew of a ship and to
any servant of the owner or of any person described in paragraphs (a) to
(c) where any of the events mentioned in paragraphs 647(2)(a) to
(d) occur, whether with or without his actual fault or privity.

(2) The
limits set by section 647 to the liabilities of all persons whose liability is
limited by section 647 and subsection (1) of this section arising out of a
distinct occasion on which any of the events mentioned in paragraphs 647(2)(a)
to (d) occurred apply to the aggregate of such liabilities incurred on
that occasion.

Denault J. had no
trouble in concluding that Captain Kelch, as captain of the Ohio,
conducted the flotilla in a negligent manner. Kelch had personal knowledge
that the turn around St. Helen's Island at the entrance to the Port of Montréal
would be a difficult one because he had run into trouble there the year before
while towing another vessel. He was aware that the current at that point was
fast and had actually agreed the night before with Captain Lyons of the Widener
that they would make the turn at a less precarious place. In fact, he had
notified Captain Lloyd, vice‑president of operations of Great Lakes, that
he was calling in a fourth tug (the Rival) to assist in the turn
precisely because he was concerned about the difficulties involved. While Denault
J. did not fault Kelch for his arrangement of the tugs, he found Kelch
negligent in having them enter the turn at full speed so that they had little
power to respond to deviations in the course of the tow. He further found
Kelch negligent in failing to communicate adequately with the other tugs. In
this regard, Denault J. made the following finding of fault (at
pp. 103-4):

However,
the greatest part of the liability must of necessity rest with the lead tug,
the "Ohio", its master and owners. The lack of preparation which was
apparent in the organization and conduct of this voyage, the haste shown by
Capt. Kelch to get into the Port of Montréal, the flagrant lack of
communication between the masters both before the turn at the Ile Ste‑Hélène
buoy and while they were proceeding back up the river, the decision to turn at
that location, their return speed, are all factors which helped to make the
accident inevitable. Furthermore, the mechanical breakdown on the tug, which
had been the subject of extreme tension, cannot serve to exonerate the owners
of the "Ohio" in respect of the "Rhone".

Denault J. also
found the South Carolina failed to discharge its burden in establishing
that it had not been at fault. Moreover, he held the captain of the Widener
was negligent for failing to communicate with the Ohio as the accident
developed and in not dropping the barge's anchor on his own initiative. He
apportioned 80 percent of the liability to Great Lakes and 20 percent to North
Central.

Denault J. proceeded
to consider the question of limitation of liability under s. 647(2). He
analyzed the organization of Great Lakes and essentially found that the
directing minds of Great Lakes were represented by Captains Lloyd and Kelch, as
well as Joseph White, who was responsible for the maintenance and repairs for
its fleet. He noted that, while Captain Lloyd had plenary responsibility for
operational matters, he had delegated significant responsibility over the tug Ohio
to Kelch. In particular, he observed that Kelch was responsible for anything
relating to the navigation of the Ohio, including the provision of
maritime maps and ensuring that all necessary items were on board the tug. He
also highlighted that, by Lloyd's own admission, Kelch was part of the company's
management and that Kelch himself viewed his many duties as making him a
representative of Great Lakes. In terms of this particular voyage, Denault J.
noted that, apart from preliminary measures taken care of by Lloyd, all
navigational decisions were Kelch's responsibility. Therefore, while Kelch
referred to Lloyd for authority to retain a fourth tug, Denault J. viewed this
merely as a formality to cover the financial aspects of the matter. The
decision whether to retain an additional tug rested with Kelch.

Denault J. also
found that the breakdown of the towing equipment had to be attributed to the
negligence of Great Lakes in maintaining its equipment. Moreover, he was
particularly concerned by the fact that Lloyd had not been aware that Kelch had
elected to act as master of the flotilla and, as a matter of practice, did not
check whether Great Lakes' servants would assume responsibility as lead tug in
a flotilla. Therefore, he concluded (at p. 110):

In
short, even assuming that the defendant G.L.T. was able to prove the identity
of persons whose acts identified them with acts of the company, it is far from
establishing that those persons were not guilty of fault or privity in the
sense that must be given to these words, as explained in the "Kathy K".
On the contrary, the evidence established that Capt. Lloyd was the person whose
acts identified him most with the acts of the company so far as administration
and general supervision are concerned, and it was abundantly clear from his
testimony that he knew practically nothing of what was happening on board his
tugs during this voyage, cared very little about it and gave his masters all
possible latitude. The person responsible for maintenance, Jos White, gave no
plausible explanation of the mechanical breakdown on board the
"Ohio". Finally, Capt. Kelch, who was responsible on the company's
behalf not only for providing the tugs with the documentation necessary for
such a voyage, but inter alia for hiring a fourth tug to bring the barge
to its destination, failed lamentably in his duties by exercising his functions
as a company manager negligently in respect of the "Rival".

Denault J.
dismissed the argument that, because the mistakes made by Captain Kelch were
navigational in nature, the limitation provisions within the Act should
nevertheless apply. He found the fact that Kelch performed non‑navigational
functions, such as providing maps and arranging additional tugs, made him part
of Great Lakes' management and, as such, any errors committed while in his
capacity as tug master were those of the company. He concluded (at
pp. 109-10):

It
does not much matter whether he acted wrongfully in his capacity as a manager
of the company, as port master, or whether his faults are attributable to
navigational errors as tug master: that cannot be a means of excluding his
liability to the plaintiff. If the same person who commits a navigational
mistake is also one whose acts identify him with the acts of the company, and
in that capacity is also at fault, his employers cannot benefit from the
limitation of liability contained in s. 647.

Denault J. next
turned to North Central's action against Great Lakes. He found Great Lakes
breached its contractual obligation to North Central and could not limit its
corresponding liability for the same reasons stated above. He also found that
the limitation of liability contained in Great Lakes' published tariff did not
form part of the contract between the parties and, therefore, he refused to
give effect to it. Accordingly, Denault J. held North Central was entitled to
recover the entire amount of the damages sustained by the Widener from
Great Lakes.

Federal Court of Appeal, [1990] 3 F.C. 185

Hugessen J.A. wrote
for the court. He addressed the findings of negligence against the three
vessels in turn. He confirmed the finding of negligence against Kelch on the Ohio,
noting that it was well supported by the evidence and that any other conclusion
would have been perverse. He also confirmed the finding against the Widener.
However, he rejected the assessment of fault against the South Carolina,
noting that any errors it had made had been pursuant to orders from Kelch on
the Ohio and not any negligence on the part of those responsible for her
navigation. He stated, however, this reversal had no implications for the
distribution of liability between Great Lakes and North Central.

On the issue of
limitation of liability, Hugessen J.A. disagreed with the trial judge's
finding of actual fault or privity in Captain Lloyd because of his inadequate
supervision of Captain Kelch. While he agreed with the trial judge that an
owner may be in actual fault or privity through sins of omission, he noted
that the jurisprudence requires that such omission breach the standard of a
reasonably prudent shipowner and be causally related to the casualty. Relying
on The Lady Gwendolen, [1965] 1 Lloyd's Rep. 335 (C.A.), Grand
Champion Tankers Ltd. v. Norpipe A/S (The Marion), [1984] 2 All E.R. 343
(H.L.), and Northern Fishing Co. (Hull), Ltd. v. Eddom (The Norman),
[1960] 1 Lloyd's Rep. 1 (H.L.), he commented (at pp. 212-13):

The
comparison between these cases and the facts as found by the learned Trial
Judge in the case at bar is striking. There is no suggestion that a lack of
supervision by the owners contributed in some way, however remote, to the
casualty. The specific acts of negligence found against Captain Kelch are
without exception ordinary questions of navigation lying within the normal
authority and scope of activity of the master. There is no shred of evidence
to suggest that a prudent shipowner would have so concerned himself with the
details of navigation as to specifically instruct Kelch where to turn the
flotilla or at what speed to tackle the St. Mary's current or in what manner to
communicate with the other captains. . . . [T]here was no reasonable likelihood
that any closer degree of supervision and reporting imposed by the owners at
the company's Head Office in Cleveland would have materially affected the
actions or decision of Captain Kelch when he was navigating his flotilla in the
Port of Montréal.

He further found
Denault J. to have erred in finding Great Lakes was in actual fault or privity
by reason of White's supervision of the repair and maintenance of the Ohio's
towing machinery. While there was clearly a causal link between the breaking
of the towing machine and the resulting damage, Hugessen J.A. concluded the
trial judge erred in imposing such a high standard on the owner of a ship in
relation to the proper functioning of its equipment. He highlighted that Great
Lakes' inspection and maintenance system was "numerous and
sophisticated" and that there was no finding of any inadequacy or defect
in that system. As such, Hugessen J.A. observed that the trial judge's
assessment of fault had the effect of incorrectly turning a shipowner into an
insurer every time a casualty results from an equipment failure.

Hugessen J.A. then
turned to the question of whether Kelch was a directing mind of Great Lakes.
Citing Wishing Star Fishing Co. v. The B.C. Baron, [1988] 2 F.C. 325
(C.A.), he noted that, if Kelch was a directing mind, the fact that he was also
acting as master and that his negligent acts had been committed within the
scope of that capacity was irrelevant. Hugessen J.A. emphasized that Kelch was
more than an ordinary master and had extended duties and responsibilities for
the conduct of the flotilla. In this regard, he relied on the following facts
in coming to the conclusion that Kelch was a directing mind of Great Lakes:
(1) he was the towmaster of the flotilla and was vested with authority to give
commands to all the other vessels in the flotilla; (2) his appointment to
command the flotilla was not made by or with the knowledge of anyone senior to
him at Great Lakes; (3) he was described, in parts of the evidence, as being
part of management, a salaried employee, a "trouble shooter" and the
person responsible for breaking in new captains; and (4) he took care of the
documents for all of the Great Lakes' fleet. Hugessen J.A. admitted that this
finding was at "the outer margins of the application of the doctrine of
corporate identification" (p. 222) but declined to characterize the
trial judge's finding as so palpable and overriding an error that it warranted
appellate intervention, particularly bearing in mind the heavy burden on Great
Lakes to establish its right to invoke the statutory limitation.

With respect to
Great Lakes' liability for the damage caused to the Widener, Hugessen
J.A. rejected Great Lakes' attempt to raise the issue of contributory
negligence. Moreover, he further dismissed its assertion that the limitation
of liability clause contained in its tariff rates formed part of the contract
between the parties. As such, apart from striking from the trial judgment the
attribution of fault against the South Carolina, Hugessen J.A. dismissed
both the appeal and the cross‑appeal.

IV. Issues

These appeals raise
three issues. First, is the master of the appellant's tug Ohio a
directing mind of the appellant by virtue of the fact that he exercised some
discretion and performed some non‑navigational functions as an incident
of his employment? Second, do the limitation of liability provisions in the Canada
Shipping Act apply to limit a shipowner's liability for the acts or
omissions of its servant in directing a flotilla comprising vessels belonging
to other shipowners? Third, in the event that the appellant is entitled to
limit its liability under the Canada Shipping Act, what vessels must be
taken into account in determining the extent of its liability?

V. Analysis

1. Is the Master of the
Appellant's Tug a Directing Mind of the Corporation?

The appellant,
Great Lakes, contends that Hugessen J.A. erred in concluding that there was
actual fault or privity on its part on the basis that Captain Kelch was a
directing mind of the corporation and that therefore Great Lakes could not
limit its liability under the Canada Shipping Act. Assessing the merits
of this contention requires that I examine briefly both the general principles
pertaining to the limitation of liability under the Canada Shipping Act
and the development of the doctrine of corporate identification before applying
the relevant principles to the facts of this case. As a preliminary matter, I
believe it important to point out that the identification of particular
individuals within a corporate structure as directing minds of that company is
a question of mixed fact and law. As Lord Reid observed in Tesco
Supermarkets Ltd. v. Nattrass, [1972] A.C. 153 (H.L.), at p. 170,
"It must be a question of law whether, once the facts have been
ascertained, a person in doing particular things is to be regarded as the
company or merely as the company's servant or agent." The legal issue is
concerned with identifying which functions or offices ground corporate identification;
the factual issue determines who carries out these functions or fills these
offices.

(a)The
General Principles of Limitation of Liability and Corporate Identification

It is well settled
that in an action to limit liability under s. 647(2) of the Canada Shipping
Act, the onus is on the shipowner claiming the limitation to establish a
complete absence of "actual fault or privity" on its part. The onus
is a heavy one which is not discharged by showing merely that the owner was not
the sole or principal cause of the mishap: Stein v. The Ship "Kathy
K", [1976] 2 S.C.R. 802, at p. 819.

The leading Anglo‑Canadian
case setting out the meaning of the words "actual fault or privity"
and its application to a corporate shipowner is Lennard's Carrying Co. v.
Asiatic Petroleum Co., [1915] A.C. 705 (H.L.), aff'g [1914] 1 K.B. 419
(C.A.). The words "actual fault or privity" were found to denote
something personal and blameworthy to a shipowner as opposed to a constructive
fault arising under the doctrine of respondeat superior. In the
oft-quoted words of Viscount Haldane L.C. at pp. 713‑14:

It
must be upon the true construction of that section in such a case as the
present one that the fault or privity is the fault or privity of somebody who
is not merely a servant or agent for whom the company is liable upon the
footing respondeat superior, but somebody for whom the company is liable
because his action is the very action of the company itself. It is not enough
that the fault should be the fault of a servant in order to exonerate the
owner, the fault must also be one which is not the fault of the owner, or a
fault to which the owner is privy; and I take the view that when anybody sets
up that section to excuse himself from the normal consequences of the maxim
respondeat superior the burden lies upon him to do so.

In Paterson
Steamships, Ltd. v. Robin Hood Mills, Ltd. (The Thordoc) (1937), 58 Ll. L.
Rep. 33 (P.C.), Lord Roche adopted the meaning attributed to the words
"fault and privity" by both the Court of Appeal and the House of
Lords in Lennard's, supra, and further highlighted that the fault
or privity of a shipowner must be fault or privity in respect of that which
causes the loss or damage in question. See also British Columbia Telephone
Co. v. Marpole Towing Ltd., [1971] S.C.R. 321, at pp. 326‑27, per
Ritchie J.

Therefore, in the
case of a corporate shipowner, it is necessary to consider whether the acts of
a particular individual giving rise to liability should be attributed to that
of the company itself. Said differently, the question that arises is at what
point in the hierarchy of a company is the fault of a person employed in the
organization to be treated as the fault of the company itself. In this
connection, the nature of a corporation was aptly described by Viscount Haldane
L.C. in Lennard's, supra, in the following manner at p. 713:

My
Lords, a corporation is an abstraction. It has no mind of its own any more
than it has a body of its own; its active and directing will must consequently
be sought in the person of somebody who for some purposes may be called an
agent, but who is really the directing mind and will of the corporation, the
very ego and centre of the personality of the corporation. That person may be
under the direction of the shareholders in general meeting; that person may be
the board of directors itself, or it may be, and in some companies it is so,
that that person has an authority co‑ordinate with the board of directors
given to him under the articles of association, and is appointed by the general
meeting of the company, and can only be removed by the general meeting of the
company.

In H. L. Bolton
(Engineering) Co. v. T. J. Graham & Sons Ltd., [1957] 1 Q.B. 159, the
Court of Appeal compared a corporation to a human body, describing those who control
what a company does (and who therefore are the directing mind and will of a
company) as the brain of an individual. Denning L.J. rejected the argument
that only actions arising from a meeting of a company's board of directors can
form the intention of a company. Rather, he accepted that the intention of a
company can be derived from its officers and agents in some instances depending
on the nature of the matter in consideration and their relative position within
the company. Denning L.J. observed at p. 172:

A
company may in many ways be likened to a human body. It has a brain and nerve
centre which controls what it does. It also has hands which hold the tools and
act in accordance with directions from the centre. Some of the people in the
company are mere servants and agents who are nothing more than hands to do the
work and cannot be said to represent the mind or will. Others are directors
and managers who represent the directing mind and will of the company, and
control what it does. The state of mind of these managers is the state of mind
of the company and is treated by the law as such.

In Tesco
Supermarkets, supra, the House of Lords dealt with a situation in
which a manager of one store in a chain of supermarkets was found to have been
negligent in supervising an employee who placed improperly priced goods for
sale, thereby committing a pricing offence under the Trade Descriptions Act
1968 (U.K.), 1968, c. 29. Their lordships held that the mere fact
that the manager exercised limited discretion in the performance of his
assigned role did not render him part of the directing mind of the company.
Lord Morris of Borth‑y‑Gest stated at pp. 180‑81:

A
system had to be created which could rationally be said to be so designed that
the commission of offences would be avoided. There was no delegation of the
duty of taking precautions and exercising diligence. There was no such
delegation to the manager of a particular store. He did not function as the
directing mind or will of the company. His duties as the manager of one store
did not involve managing the company. He was one who was being directed. He
was one who was employed but he was not a delegate to whom the company passed
on its responsibility. He had certain duties which were the result of the
taking by the company of all reasonable precautions and of the exercising by
the company of all due diligence. He was a person under the control of the
company . . . . He was, so to speak, a cog in the machine which was devised:
it was not left to him to devise it.

Some commentators
have suggested that their lordships placed too great a reliance upon form at
the expense of function in their analysis: I. A. Muir, "Tesco
Supermarkets, Corporate Liability and Fault" (1973), 5 N.Z.U. L. Rev.
357, at p. 365. Glanville Williams states in his Textbook of Criminal
Law (2nd ed. 1983), at p. 973:

In
crimes requiring mens rea it does not greatly matter if the range of
persons inculpating the company is restricted, since the purposes of deterrence
are generally best served by prosecuting those who are responsible. It is in
offences of negligence that the limitation of liability imposed in Tesco
is most injurious. That a company should not be liable for an offence of
negligence committed by its branch manager, who after all represents the
company in the particular locality, is a considerable defect in the law.

Another commentator characterizes Tesco
Supermarkets and the cases which followed it as evincing a "socially
unjustifiable regression" which was incapable of providing effective
deterrence against criminal conduct perpetrated by multinational corporations
with complex managerial structures: E. G. Ewaschuk, "Corporate Criminal
Liability and Related Matters" in (1975), 29 C.R.N.S. 44, at pp. 52‑53.

This Court
considered the issue of corporate identification in Canadian Dredge &
Dock Co. v. The Queen, [1985] 1 S.C.R. 662. Estey J. found that in order
for a corporation to be criminally liable under the "identification"
theory, the employee who physically committed the offence must be "the
`ego', the `centre' of the corporate personality, the `vital organ' of the body
corporate, the `alter ego' of the employer corporation or its `directing
mind'" (p. 682). However, he also acknowledged that there may be
more than one directing mind and highlighted that there may exist the
"delegation and sub-delegation of authority from the corporate
centre" and the "division and subdivision of the corporate
brain". In this regard, Estey J. provided the following guidance as to
who may qualify as the directing mind of a corporation at p. 693, casting
doubt in the process of whether the specific conclusion reached in Tesco
Supermarkets, supra, is appropriate in the Canadian context:

The
identity doctrine merges the board of directors, the managing director, the
superintendant, the manager or anyone else delegated by the board of directors
to whom is delegated the governing executive authority of the corporation, and
the conduct of any of the merged entities is thereby attributed to the
corporation. . . . [A] corporation may, by this means, have more than one
directing mind. This must be particularly so in a country such as Canada where
corporate operations are frequently geographically widespread. The transportation
companies, for example, must of necessity operate by the delegation and sub‑delegation
of authority from the corporate centre; by the division and subdivision of the
corporate brain; and by decentralizing by delegation the guiding forces in the
corporate undertaking. The application of the identification rule in Tesco,
supra, may not accord with the realities of life in our country, however
appropriate we may find to be the enunciation of the abstract principles of law
there made.

As Estey J.'s reasons
demonstrate, the focus of inquiry must be whether the impugned individual has
been delegated the "governing executive authority" of the company
within the scope of his or her authority. I interpret this to mean that one
must determine whether the discretion conferred on an employee amounts to an
express or implied delegation of executive authority to design and supervise
the implementation of corporate policy rather than simply to carry out such
policy. In other words, the courts must consider who has been left with the
decision‑making power in a relevant sphere of corporate activity.

Negligence on the
part of a master of a ship in the performance of his or her navigational duties
does not amount to actual fault or privity on the part of a corporate shipowner.
Courts have viewed masters as the "hands" of a shipping company.
Obviously, if it were otherwise a corporate shipowner's right to limit its
liability would be virtually nonexistent. However, having said that, the
courts have moved away from allowing shipowners to wash their hands completely
of all responsibility for matters of navigation by leaving everything to the
discretion of their masters. Whereas in the past it may have been sufficient
for a shipowner to discharge its responsibility by merely showing that it
appointed a competent master, a number of decisions now make it clear that
there exists an overall duty on a shipowner to supervise properly the
navigation of its vessels: see, for example, Grand Champion Tankers, supra,
and Continental Bank of Canada v. Riedel International Inc. (1991), 78
D.L.R. (4th) 232 (F.C.A.).

In such instances,
the focus of inquiry is on whether a shipowner acted as an ordinary reasonable
shipowner in the management and control of its shipping operation (e.g., in the
selection of its crew and supervision of the navigation of its vessels): The
Lady Gwendolen, supra, and The Garden City, [1982] 2 Lloyd's
Rep. 382 (Q.B. (Adm. Ct.)). Courts have further applied a "reasonable
likelihood" test in determining whether the exercise of particular duty by
a shipowner would have prevented the impugned damage. For example, in Marpole
Towing, supra, Ritchie J. accepted that damage caused by the
negligent navigation of a ship does not give rise to actual fault or privity on
the part of the shipowner where the navigational error committed by the tug
master could not have been foreseen by the shipowner.

The issue, however,
this Court is asked to consider is not whether Great Lakes breached its duty to
supervise and manage its vessels properly but instead whether Captain Kelch's
faults are essentially the actual faults of Great Lakes by reason of his position
within the corporate hierarchy of the appellant. In this regard, it is
relevant to note Hugessen J.A.'s observation at p. 213 that "if Kelch
was truly a directing mind and will of the company, the fact that he was also
acting as master and that his negligence was committed in that capacity is
nothing to the point": see also Wishing Star Fishing, supra,
and Société anonyme des minerais v. Grant Trading Inc. (The Ert Stefanie),
[1989] 1 Lloyd's Rep. 349 (C.A.). The appellant did not challenge this proposition
before this Court and, in light of the conclusion I have arrived at, I need not
discuss this matter any further.

(b) Application
of These Principles to This Case

Captain Kelch was
admittedly the master of the Ohio at the time of the collision. As
noted above, navigational errors committed by a ship's master, in the course of
his or her duties, do not in themselves give rise to actual fault or privity on
the part of the shipowner in the absence of a breach of its duty to supervise
the management and navigation of its vessel which is causally linked to the
resulting damage. However, it is alleged that Captain Kelch also performed
exceptional duties on behalf of his employer which rendered him not just a
master but more importantly a directing mind of Great Lakes such that his fault
was that of the company. In particular, the courts below emphasized that Kelch
was de facto commodore of the flotilla and in this capacity he gave
instructions to the other vessels in the flotilla and could elect to bring in
additional tugs if he deemed it necessary for safe navigation. Furthermore,
reference was made to the fact that Kelch was described as being part of
management, a salaried employee, a fleet captain, a "trouble shooter"
and the person responsible for breaking in new captains. The courts below also
placed weight on the fact that Kelch was responsible for ensuring that the
paperwork was in order for all of the tugs in Great Lakes' fleet.

With respect, I
cannot agree with the conclusion reached by the courts below as to the status
of Captain Kelch as a directing mind of Great Lakes. In my opinion, the facts
of this case do not merely put it at "the outer margins of the application
of the doctrine of corporate identification" but outside those margins.

While Captain Kelch
was described as part of the "management" and a "trouble
shooter" for Great Lakes (Hugessen J.A., at p. 221; Captain Lloyd,
Evidence, hearing September 15, 1987, transcript at p. 49; and Captain
Kelch, Commission Evidence, Appeal Book, app. I, vol. 3, at p. 291), one
must look behind these labels and consider the responsibilities and functions
performed by Captain Kelch within the Great Lakes' hierarchy in the context of
captains of seafaring vessels. In this respect, it is clear from the totality
of the evidence that Captain Kelch was essentially a port captain subject to
the supervision and direction of Captain Lloyd. It is not surprising that
given his twenty‑five years of expertise that Kelch was given additional
responsibilities in such matters as breaking in new tug captains, assisting
with occasional problems, and taking care of documents for Great Lakes'
fleet. However, these additional tasks, in my mind, do not denote delegation
to Captain Kelch of the governing executive authority over the management and
supervision of Great Lakes' fleet. This authority remained with Captain
Lloyd, as is borne out by the evidence.

For example,
Captain Kelch described both his and Captain Lloyd's role at Great Lakes in the
following manner:

Q.At
the end of your employment with Great Lakes, you were a fleet captain?

A.Port
captain, or whatever.

Q.What
were your duties?

.
. .

A.Flunkie
. . . I was a flunkie, believe me, more or less a trouble shooter. I would
make tows. I could communicate pretty good with the unions, you know, really.

.
. .

Q.Chick
Lloyd was mentioned. Who exactly is he?

.
. .

A.He
is the flunkie now. He was the operations manager. He was a vice‑president.

Q.He
was a vice‑president and operations manager. What were the nature of his
duties then?

A.Well,
he could make prices on the tows. They would come to him if somebody wanted a
specific tow or tug or anything like that.

Q.Was
he responsible for crewing the tugs?

A.Well,
in a way. I mean he had a lot of people that if he didn't want them on there,
they didn't go. He was in charge of the whole operation, really, as far as the
marine end of it, you know.

Q.And
I take it then he was your supervisor?

A.My
supervisor, my immediate supervisor, yes.

Q.Did
you report only to him?

A.Just
about. I never had any cause to report to anyone one else unless, of course,
you call into the dispatcher. I mean, I was under Chick Lloyd. I did ‑‑
whatever rotten job he had for me, I done.

In terms of Captain
Kelch's role as towmaster of the flotilla, evidence was led at trial to show
that it was not out of the ordinary practice for the captain of the lead tug to
act as master of a flotilla (Captain Lyons, Evidence, hearing September 15,
1987, transcript at pp. 130‑31). Arranging for additional tugs was also
a component of the exercise of navigational responsibilities. While Captain
Kelch did not require authorization to engage a fourth tug, he frequently
reported to Captain Lloyd about his actions (Denault J., at p. 107). His
extensive authority in navigational matters was not unusual in the trade. In
this regard, we should bear in mind that, by necessity and tradition, the discretion
of a master in the performance of his or her assigned role is a wide one that
generally extends to all acts that are usual and necessary for the use and
employment of a ship: Grant v. Norway (1851), 20 L.J.C.P. 93, at
p. 98. A master's discretion in navigational matters does not derive from
delegation of central authority but from tradition and necessity. The very
nature of the shipping business makes it impractical for a ship's master to
call in for instructions to deal with routine navigational concerns. In this
respect, the appellant submits, correctly in my mind, that to find Captain
Kelch a directing mind of Great Lakes on the basis of his authority in
navigational matters while at sea would virtually nullify the effect of the
limitation of liability provisions within the Canada Shipping Act.

It should be noted
that the managerial complexity of shipping companies is not a novel development
of which earlier formulations of the corporate identification doctrine were not
cognizant. Keeping in mind Estey J.'s observations in Canadian Dredge &
Dock, supra, one cannot truly say that the authority over navigational
matters enjoyed by Captain Kelch is the sort of delegation which conferred
"governing executive authority" over the management of Great Lakes'
ships. It is in the very nature of seafaring that the master must be invested
with discretion to respond to variations in the weather, the tides, and other
navigational matters. It does not flow from this necessary delegation that the
master is thereby invested with the full discretion to act without guidance
from supervisors in relation to matters of corporate policy, such that he can
be said to have been delegated managerial authority. Nor can it be said that a
master is free from control and instruction from those at Great Lakes
responsible for the supervision and management of its fleet (i.e., Captain
Lloyd). The fact that Captain Lloyd may have been lax in his supervision of
Captain Kelch does not alter the fact that Kelch was essentially a servant of
Great Lakes.

With respect, I
think that the courts below overemphasized the significance of sub‑delegation
in this case. The key factor which distinguishes directing minds from normal
employees is the capacity to exercise decision-making authority on matters of
corporate policy, rather than merely to give effect to such policy on an
operational basis, whether at head office or across the sea. While Captain
Kelch no doubt had certain decision-making authority on navigational matters as
an incident of his role as master of the tug Ohio and was given
important operational duties, governing authority over the management and
operation of Great Lakes' tugs lay elsewhere. Therefore, I am of the view that
the courts below erred in holding that Captain Kelch was part of the directing
mind and will of Great Lakes. As a result, the collision between the Rhône
and the Widener did not occur with the actual fault or privity of Great
Lakes.

2.Does
Section 647(2) Apply to Limit Great Lakes' Liability with Respect to
Errors Committed in the Navigation of Other Vessels Within the Flotilla not
Owned by Great Lakes?

Because I am of the
view that the courts below erred in finding Captain Kelch a directing mind of
Great Lakes, it is necessary to consider the respondents' alternative argument
that s. 647(2) does not extend to limit Great Lakes' liability for Captain
Kelch's direction of other vessels within the flotilla not owned by it. For
ease of reference, I reproduce again s. 647(2)(d):

647. . . .

(2) The
owner of a ship . . . is not, where any of the following events occur without
his actual fault or privity, namely,

.
. .

(d) where
any loss or damage is caused to any property . . . through

(i) the
act or omission of any person, whether on board that ship or not, in the
navigation or management of the ship, . . . or

(ii) any
other act or omission of any person on board that ship;

The respondents
contend that Captain Kelch was negligent with respect to the navigation not
only of the Ohio but also of the Ste. Marie II, Rival, and
Widener. As such, they submit that Great Lakes cannot limit its
liability under s. 647(2)(d)(i). This provision allows a shipowner only
to limit its liability for damage caused through the navigation or management
of its own ships. Since it is alleged that the collision was caused through
acts or omissions of Captain Kelch in the navigation of vessels not owned by
Great Lakes, the respondents submit that the appellant cannot rely on this
provision to limit its liability. Moreover, the respondents contend that s.
647(2)(d)(ii) should not be interpreted to apply in this case since it
would require this Court to accept that any act or omission of Captain Kelch on
board the Ohio would be subject to limited liability regardless of
whether it is related to the operation of that vessel. In this regard, the
respondents highlight that Captain Kelch's directions related not only to the
operation of the Ohio but also to the overall navigation of the
flotilla.

A similar argument
was addressed and unanimously rejected by the Court of Appeal in The Bramley
Moore, [1963] 2 Lloyd's Rep. 429. In that case, the owners of a tug
brought an action to limit their liability under the English equivalent to
s. 647(2) of the Canada Shipping Act for a collision between a
barge being towed by the tug and a third vessel. The tug and tow were
separately owned. Counsel for the third vessel contended that the tug's owners
were not entitled to limit their liability. They argued that it was by reason
of the improper navigation of both tug and tow that the collision occurred and,
therefore, a claim could not be made out under the statute both prior to and
after its amendment in 1958. The relevant portion of the statute prior to 1958
provided that the "owners of a ship" could limit their liability for
damage caused to another vessel "by reason of the improper navigation of
the ship." Accordingly, it was submitted that since the collision was not
only caused by reason of the improper navigation of the tug but also the tow,
the tug owner was not able to claim the benefit of limited liability under the
statute.

Lord Denning, M.R.,
writing for the court, dismissed this argument on two separate grounds. First,
he highlighted that the statutory provision required courts to consider the
cause of the damage. He reasoned that, at least in the case of separate
ownership, where only those on board a tug are negligent, the true cause of the
damage is the improper navigation of the tug and not the tow. In those
circumstances, the statute would apply without question to limit the liability
of the tug owner. He reasoned at p. 436:

It
can well be said that the owners of the tug were guilty of "improper
navigation" of the barge ‑‑ in that they were in control of
the movement of the barge through the water. But the section requires you also
to look at the cause of the damage. That is clear from the words "by
reason of". And in a case where those on the tug are negligent, and those
on the barge are not, the cause of the damage is in truth the improper
navigation of the tug, not the improper navigation of the barge. It is the tug
which is the cause of all the trouble. That is, at any rate, the way in which
these cases have been regarded in the past . . . . This must be on the
assumption that the damage is "by reason of the improper navigation"
of the tug, but not "by reason of the improper navigation" of the
tow.

Second, Lord
Denning found that, in any event, the argument that the tug owners' right to
limit their liability was conditional on their being owners of the barge was
dispelled by virtue of the 1958 amendment to the Act. This amendment expanded
the scope of limited liability to also include damage caused to any property
"through any other act or omission of any person on board the ship."
Applying this statutory provision to the fact situation at hand, Lord Denning
observed at p. 437:

If
those on board the tug are negligent and those on board the tow are not, and
the tow comes into collision with another vessel, then clearly the damage is
caused through an "act or omission of any person on board the tug".
If you insert the appropriate words into the section as now amended, it reads
in this way: "The owners of a tug shall not, where damage is caused
through any act or omission of any person on board the tug, be liable in
damages" beyond an amount calculated on the tonnage of the tug. So read,
it seems clearly to cover the case when those on the tug are negligent and
those on the tow are not. It shows that the owners of the tug can limit their
liability according to the tonnage of the tug.

The respondents, in
the case at bar, contend that Captain Kelch's orders to turn at the Seaway
entrance buoy and to proceed at full speed once the turn had been made involved
not only Great Lakes' tugs but also the Rival and Ste. Marie II.
Therefore, it is argued that these acts of Captain Kelch, which were expressly
found by the courts below to have caused the resulting casualty, involved the
navigation of vessels not owned by Great Lakes, thereby foreclosing its ability
to rely on s. 647(2)(d)(i). Moreover, they argue that it is
implicit in the trial judge's reasons and findings that Captain Kelch's
omission to order the drop of the Widener's anchor contributed to the
collision. In this regard, the respondents contend that this case can be distinguished
from cases such as the Robertson v. Owners of the Ship Maple Prince,
[1955] Ex. C.R. 225 (which have held that where a tug and tow are separately
owned, a casualty arising from the navigation of the tow should be attributed
to the tug) since Captain Kelch was capable of navigating the Widener
without the use of the Ohio.

Accepting for the
sake of argument that the cause of the collision must be attributed to Captain
Kelch's navigation not only of the Ohio but also the other vessels
within the flotilla not owned by Great Lakes, the respondents' argument
nonetheless fails on the clear words of s. 647(2)(d)(ii). This
provision provides that Great Lakes, as owner of the Ohio, may limit its
liability for damage caused to another vessel through "any other act or
omission of any person on board [that] ship." Therefore, Great Lakes may
limit its liability since the cause of the collision consisted of acts or
omissions of Captain Kelch on board the Ohio.

Interpreting
s. 647(2) in this manner to limit the appellant's liability accords not
only with the clear words of the statute but also with the purpose underlying
this section, namely, removing the threat of unlimited liability to a
shipowner. In this regard, we should recall the role of limited liability for
shipowners in the development of modern shipping enterprises and in the
facilitation of insurance coverage: see Marpole Towing, supra,
at p. 338; The Garden City, supra, at p. 398; and
Christopher Hill, Maritime Law (3rd ed. 1989), at p. 242. As has
often been observed, the origin of these limitation provisions rests with the
desire to promote commerce and international trade by affording shipowners
protection from the full impact and perhaps ruinous pecuniary liability arising
from acts of navigation over which they have no personal control.

Certainly, a number
of commentators have drawn into question the continued need for limited
liability in this day and age of corporations and developed insurance markets:
e.g., Grant Gilmore and Charles L. Black, The Law of Admiralty (2nd ed.
1975), at p. 822. However, whether this regime is responsive to modern
realities is a question of policy to be determined by Parliament and not the
courts whose task is to interpret and give effect to the intention of
Parliament. In this regard, I consider the following comment by Lord Denning
in The Bramley Moore, supra, at p. 437 apposite:

The
principle underlying limitation of liability is that the wrongdoer should be
liable according to the value of his ship and no more. A small tug has
comparatively small value and it should have a correspondingly low measure of
liability, even though it is towing a great liner and does great damage. I
agree that there is not much room for justice in this rule; but limitation of
liability is not a matter of justice. It is a rule of public policy which has
its origin in history and its justification in convenience.

Accordingly, Great
Lakes is not precluded from limiting its liability under s. 647(2) under the
respondents' alternative argument.

3.In
the Event that Great Lakes Is Entitled to Limit its Liability Under Section
647(2), Is the Appropriate Unit of Limitation Under Section 647(2) the Tonnage
of the Tug Ohio Alone or the Aggregate Tonnage of the Tugs Ohio and South
Carolina?

Great Lakes submits
that, in the event that it is found able to limit its liability under s.
647(2), its limitation should be restricted to the tonnage of the tug Ohio.
The respondents, however, contend that the proper unit of limitation is the
combined tonnage of the two tugs owned by the appellant, the Ohio and South
Carolina. They submit that the collision was caused in part by the
combined navigation of both these tugs by the same servant of the appellant.
Therefore, they argue that liability should be calculated according to the
aggregate tonnage of the "wrongdoing mass". The Canada Shipping
Act provides that a shipowner's liability may be limited according to the
tonnage of its vessel whose navigation or management caused the resulting
damage or on which the impugned acts or omissions giving rise to liability
occurred. However, a review of Anglo‑Canadian jurisprudence, relating to
the limitation of liability for collisions involving tugs and tows, reveals
some divergence of opinion as to which vessels belonging to a shipowner must be
taken into account in determining the extent of the shipowner's liability. As
such, it is appropriate to review the case law briefly before stating my
conclusion on this point.

Early English case
law accepted that, where a tug and tow are commonly owned, navigational errors
committed by the employees of the shipowner, while on board the tug, are also
errors in the navigation of the tow thereby giving rise to liability to the
shipowner as both owner of the tug and tow: The Ran; The Graygarth,
[1922] P. 80 (C.A.); The Harlow, [1922] P. 175 (Adm.); and The Freden
(1950), 83 Ll. L. Rep. 427 (Adm.). Accordingly, the appropriate unit of
limitation was that of both tug and tow.

Canadian courts
adopted a similar stance. In Owners of the M.S. Pacific Express v. The Tug
Salvage Princess, [1949] Ex. C.R. 230, the court relied on The Ran
and The Harlow to conclude that, where a tug and tow are commonly owned,
liability will be limited according to the aggregate tonnage of both despite
the fact that only the tug could be said to have been negligent. Sidney Smith
D.J.A. commented at pp. 234‑35:

But
to do this they must bring into account the tonnage of those of their vessels
as may have contributed to the damage by actual impact, or by their momentum.
Liability must be calculated on the aggregate tonnage of the wrong‑doing
mass. I think this is the effect of The Ran; The Graygarth case supra,
as explained in the Harlow case supra. Here the tonnage in
question must be that of tug plus barge; for, to slightly modify the language
of plaintiffs' submission, "the tug and derrick‑barge were lashed
together as a unit during the whole of the relevant period; it was a case of
the one vessel, one owner, one master, one group of employees of that
owner".

However, in Maple
Prince, supra, Sidney Smith D.J.A. drew a distinction between cases
in which the tug and tow are separately and commonly owned. The court in that
case held a tug owner was entitled to limit its liability based on the tonnage
of the tug alone for a collision between its tow and a third vessel because,
unlike the situation in Pacific Express, supra, the tug and tow were not
owned by the same person. He observed at p. 228:

I
think the language of the decisions on limitations taken in its full effect
indicates that the ships that must be brought into account in fixing a tonnage‑basis
of liability are the defendant's ships that are "guilty" in the
affair of the collision. . . . Where the barges do not belong to the tug‑owner,
they are not "guilty", and so are not to be considered.

The issue came
before this Court in Monarch Towing & Trading Co. v. British Columbia
Cement Co., [1957] S.C.R. 816. Monarch owned the tug and chartered the
unmanned scow which became stranded and sank during the voyage. The owner of
the scow sued the tug owner. Negligence was admitted and the tug owner brought
an action to limit its liability. For purposes of the limitation provisions,
"owner" was defined to include the "lessee or charterer of any
vessel responsible for the navigation thereof". Consequently, Monarch
was deemed both the owner of the tug and scow. When it sought to limit its
liability, it argued that the appropriate measure of its liability should be
the tonnage of the tug alone since the actual negligence occurred on the tug.
This Court rejected that argument and held liability should be assessed on the
combined tonnage of both vessels.

Kerwin C.J.,
writing also for Taschereau J. and with Cartwright J. concurring, reasoned that
since Monarch was the owner of both vessels for purposes of the Canada
Shipping Act and further that the tow was not an "innocent" ship,
the tonnage of both vessels had to be taken into account. He found the scow,
as well as the tug, to be negligent on the ground that its stranding was caused
by those in command of the tug who were both servants of Monarch and also
responsible for the navigation of the scow. As such, this case was found to be
distinguishable from Maple Prince, supra. Locke J. came to the
same conclusion without rendering any reasons. Rand J., with Cartwright J.
also concurring, observed that liability in this case arose both in contract
and tort. As such, he interpreted the term "ship" in then
s. 657 of the Canada Shipping Act, R.S.C. 1952, c. 29, to
include both a tug and its tow performing a contractual undertaking. He
observed that the same result would arise if the claim had been based in tort
concluding that, since both vessels were owned by Monarch, the negligent
navigation of the tug by Monarch's agents was also attributable to the
navigation of the scow and thereby rendered the latter also negligent. The
scow was held to be in a "guilty agency" and to be analogous to the
barge in The Ran, supra. Rand J. stated at p. 822:

With
a common ownership of two vessels whose combined mismanagement has caused
damage through collision to the goods of a shipper in one of them, the
liability of the owner is related to the several fault of each of his vessels,
that is, they are deemed to be two sources of liability, two distinct agencies
with different servants of the same master, each giving rise to a
responsibility and each coming under the limitation of s. 657. [Citation
omitted.]

However, when the
issue of limited liability came before the English Court of Appeal again in The
Bramley Moore, supra, Lord Denning openly questioned the significance
of common ownership in determining the extent of a shipowner's liability. In
his opinion, where those on board a tug are negligent and those on a tow are
not, the cause of damage is the improper navigation of the tug and not its
tow. It is the tug which is the cause of all of the trouble. In this regard,
Lord Denning drew into question the decision in The Ran, supra.
He failed to see the relevance of common ownership and found there was "no
logical ground" for this special exception allowing for liability to be
assessed on the combined tonnage of tug and tow where both are commonly owned.
In his opinion, it is only when those on board both the tug and tow are
negligent and it is the combined negligence of both vessels which cause the
damage that liability against the common owner of both vessels should be based
on the combined tonnage of both tug and tow: i.e., The Harlow, supra.
It is important to stress that Lord Denning's comments regarding common
ownership were strictly obiter dictum since the tug and tow in that case
were not commonly owned.

Lord Denning's obiter
comments were reluctantly followed in London Dredging Co. v. Greater London
Council (The Sir Joseph Rawlinson), [1972] 2 Lloyd's Rep. 437 (Q.B.
(Adm. Ct.)). The issue before the court was on what basis could the owners of
a tug and tow limit their liability for a collision arising from the negligence
of those on board the tug but for which there was no negligence on the part of
anyone on the tow. As the tug and barge were owned by the same person, the
respondent submitted that the appropriate limit should be the combined tonnage
of both ships. Kerr J. expressed great sympathy for the view that the owner of
a tug whose barge was also involved in the casualty should be called upon to
pay an amount related to both vessels. However, he felt bound by Lord
Denning's test of "causative negligence" to hold that liability must
be limited according to the tonnage of the tug alone. Consequently, he
dismissed the respondent's argument that the English equivalent to our s.
647(2)(d)(i) required liability to be limited according to the tonnage
of both tug and tow, stating the following at p. 445:

First,
there is the passage by Lord Denning, giving the unanimous judgment of the
Court of Appeal, about the effect of causation . . . . It seems to me that on
the basis of that passage the only causative negligence, which is the
negligence to which one must look, must in cases such as this be regarded as
negligence in the navigation of the tug, and not negligence in the navigation
of the tow or negligence in the navigation of both the tug and tow.
Accordingly, whilst it is apparently still correct to say that a person who
negligently navigates a tug towing something may be negligent in the navigation
both of the tug and the tow, in particular where the damage is caused wholly or
as in the present case partly by the tow, it seems to me that the effect of the
decision of the Court of Appeal is that the causative negligence is in
such cases to be treated as negligence in the navigation of the tug alone. I
also consider that if this is the correct approach to the statutory position
before 1958, then one cannot say that this has been altered by the 1958 Act.
[Emphasis in original.]

With the decisions in
The Bramley Moore, supra, and The Sir Joseph Rawlinson, it
must now be regarded as settled in English jurisprudence that common ownership
of a tug and tow is irrelevant for purposes of the limitation of liability
provisions of the Act: L. J. Kovats in The Law of Tugs and Towage
(1980), at p. 172, and Hill, supra, at p. 260. Regardless of
ownership, liability is limited according to the vessel found to be negligent.

Although English
jurisprudence has expressly cast doubt on the correctness of finding the owner
of a tug and tow liable to the extent of their combined tonnage, when the issue
came before this Court again in Kathy K, supra, liability was
assessed against the common owner of a tug and tow for the negligent navigation
of the tug on the basis of the tonnage of both vessels. Without elaborating on
its reasons, this Court merely stated that it agreed with the trial judge that
liability should be based on the aggregate tonnage of the wrongdoing mass
(i.e., the tug and tow). At the trial level, [1972] F.C. 585, Heald J. (as he
then was) relied on Pacific Express, supra, and Monarch Towing,
supra, to reach this conclusion. Neither court in Kathy K, supra,
made any reference to The Bramley Moore, supra, or to The Sir
Joseph Rawlinson, supra.

Not surprisingly,
Great Lakes submits this Court should follow the English example and base the
extent of its liability solely according to the tonnage of the Ohio.
The respondents, on the other hand, highlight that jurisprudence from this
Court suggests that liability must be calculated on the aggregate tonnage of
those vessels owned by Great Lakes forming the "wrongdoing mass"
(i.e., the tugs Ohio and South Carolina). The respondents also
raise The Alvah H. Boushell, 38 F.2d 980 (4th Cir. 1930), in support of
their position. The relevant passage relied on by the respondents appears at
p. 982:

In
this case, the towing company contracted to tow a ship to a given destination,
necessitating the use of two of its tugs. The ship was taken over and placed
in the control of the tugs, under the specific direction of the master of one
of the tugs. That master took command of the ship and tugs, and was proceeding
en route in charge of the flotilla, directing the same from the ship's bridge,
as is customary, and while so engaged, pursuant to the towage undertaking, a
collision occurred, as a result of the fault in navigation of the tow thus in
charge of the master of one of the tugs, so placed in command by the towing
company. Under such circumstances, both tugs are responsible and liable for
damages arising from such collision, certainly where, as found here by the
trial court, and as to which there seems to be no very serious controversy,
both were participants in the venture and undertaking, and both were at fault in
bringing about the collision. The master of the Boushell, so in control of the
undertaking, was, in such circumstances, to all intents and purposes, the
master of both vessels, and the two tugs constituted the unit to be surrendered
to justify a limitation of liability.

While the court in
that case held the owner of the two tugs had to surrender both tugs in order to
limit its liability, contrary to the suggestion of the respondents, I do not
interpret that case to stand for the proposition that a blameless tug under the
direction of the lead tug must also be included in determining the extent of a
shipowner's liability. In my mind, the broad language used in that case should
be read in light of the fact that both tugs were found by the trial judge to
have been at fault. The Circuit Court rejected the argument that the
subordinate tug was entirely free from fault in bringing about the collision
since the lead tug was in charge of the tow. The Circuit Court, to the
contrary, emphasized that at the time of the collision the subordinate tug was
the only one of the two tugs still in a position to render aid in avoiding the
collision. Liability was also assessed against the lead tug on the basis that
it owed a duty to exercise the proper precautions for the protection and safe
conduct of shipping place under its control. As such, the decision is
distinguishable from the case at bar where only one of the tugs was actually
found to have been at fault. The respondents did not challenge before this
Court Hugessen J.A.'s finding of no fault on the part of the South Carolina
and his statement that the uncontradicted evidence in the record as to the South
Carolina's actions was "wholly disculpatory" (p. 200).

It is apparent that
there exists a difference of opinion between Canadian and English courts in
interpreting what is essentially the same statutory provision. The
respondents seek to extend the wrongdoing mass principle developed in the
context of tug and tow cases to the case at hand. However, for purposes of
this appeal I do not believe it necessary or appropriate to resolve this
divergence of opinion between Canadian and English courts given my view that
the respondents' argument can also be dismissed under the existing wrongdoing
mass doctrine.

It is important to
highlight that the jurisprudence on this issue has never extended so far as to
require that all the vessels within a flotilla belonging to an impugned
shipowner be taken into account in determining the extent of that shipowner's
liability: The Harlow, supra, The Freden, supra,
and Maple Prince, supra. The intent of s. 647(2) is to limit
liability for navigational errors according only to the tonnage of those
vessels causing the alleged damage. Apart from the vessel responsible for the
overall navigation of a flotilla, only those vessels of the same shipowner
which physically caused or contributed to the resulting damage form the unit
for which liability is limited: Pacific Express, supra, and Monarch
Towing, supra. As already mentioned, the South Carolina was
absolved of any fault in this case. Only the Ohio and the Widener
were found to have been negligent. Moreover, it does not appear from the
findings of the courts below that the South Carolina contributed to the
collision in any manner other than in following Captain Kelch's instructions
with respect to the location of the turn and the speed at which it travelled.
Said differently, it did not physically contribute to the collision in any
manner. The resulting damage to the Widener and the Rhône would
have arisen notwithstanding the role of the South Carolina. In light of
these facts, the South Carolina cannot be held to be a
"guilty" vessel or part of the "wrongdoing mass".

In my view, it
would be stretching the principles of causation beyond their proper limits to
hold a vessel not physically causing the impugned damage nor responsible for
the navigation of the vessel which in fact physically caused the damage to be
part of the "wrongdoing mass". While it may appear to be unjust to
limit a shipowner's liability to only one vessel when it has a second vessel
which may be used to satisfy a plaintiff's loss, we must remember, as Lord
Denning pointed out in The Bramley Moore, supra, that the
rationale for limitation of liability rests on public policy concerns and not
necessarily on considerations of justice. As stated above, the purpose of
these limitation provisions generally is to promote international trade and
merchant shipping by giving shipowners the protection of limited liability. In
my opinion, it would be counter to the intent of these limitation of liability
provisions to include within the unit of limitation a helper tug not committing
a fault of its own or otherwise physically causing the impugned damage.
Therefore, I am of the view that liability should be limited only to the
tonnage of the Ohio.

V. Disposition

Both appeals are
allowed and the judgment of the Federal Court of Appeal, in so far as it
relates to the Great Lakes' inability to limit its liability under
s. 647(2) (now s. 575(1)) of the Canada Shipping Act, is set
aside. The unit of limitation for purposes of s. 647(2) should be the tug
Ohio. Pursuant to s. 649(2), the appellant's liability in both actions
with respect to all the losses and damages resulting from the collision of the Rhône
and Widener is limited to the tonnage of the Ohio. The appellant
is entitled to its costs in this Court. However, because it disputed a finding
of liability in both of the courts below and because this finding was upheld on
appeal, the appellant is entitled only to half of its costs in the courts
below.

//McLachlin J.//

The reasons of
L'Heureux-Dubé and McLachlin JJ. were delivered by

McLachlin
J. (dissenting in part)
-- I have read the reasons of Iacobucci J. and substantially agree with them,
except on one issue. I agree that the limitation on liability found in s. 647(2)
of the Canada Shipping Act, R.S.C. 1970, c. S-9, applies in this case.
Like my colleague, I would reject the argument that the appellant cannot claim
the benefit of the limitation of liability because Captain Kelch was its
directing mind. I would also reject the argument that the limitation of
liability does not apply where some of the vessels in a flotilla are not owned
by the party responsible in law for a shipping accident.

The only remaining
question is what vessels must be taken into account into determining the extent
of the liability. On this point, I respectfully differ from my colleague. In
my view, the wording of the section, the jurisprudence, the rationale for the
limitation, and the practical implications of the alternative rulings, all
point to the conclusion that both tugs owned by the appellant, the Ohio
and the South Carolina, should be considered in determining the extent
of the liability.

The limitation is
stated in the following terms. Provided that it applies, the owner is not:

647. . . .

liable
for damages beyond the following amounts, namely,

. . .

(f)
in respect of any loss or damage to property or any infringement of any rights
mentioned in paragraph (d), an aggregate amount equivalent to 1,000 gold
francs for each ton of that ship's tonnage. [Emphasis added.]

The phrase "that ship"
refers back to the opening of s. 647(2), which confers the limitation on
"[t]he owner of a ship . . . ." The question is what, for the
purposes of this case, constitutes "that ship". Section 647(2)(d)
incorporates a further limitation which may bear on the meaning of "that
ship". The loss or damages must be caused through:

(i)
the act or omission of any person, whether on board that ship or not, in the
navigation or management of the ship . . ., or

(ii)
any other act or omission of any person on board that ship;

Of the four tugs
towing the barge the Widener, two, the Ohio and the South
Carolina, were owned by the appellant. All the tugs acted in tandem. The
Ohio was positioned ahead of the Widener, the Rival was
behind the Widener, and the South Carolina and Ste. Marie II
were to the starboard and port sides of the Widener, respectively.
Captain Kelch, who was on board the Ohio, acted as de facto tow
master of the flotilla. The Captain's navigational errors, compounded by a
malfunction of the Ohio's towing apparatus, caused the collision. The
findings of the trial judge focus on two navigational errors by Captain Kelch:
(1) having the tugs enter the turn in question at full speed; and (2) failing
to communicate with the masters on board the various tugs. As a result of
these errors, the tugs were unable to respond adequately to deviations in the
course of the tow, and the barge which they were towing collided with another
vessel, the Rhône.

The question is
whether the appellant's liability is limited by reference to the tonnage of the
Ohio, or whether the tonnage of both vessels owned by the appellant, the
Ohio and the South Carolina, should be used as the basis for
calculating the maximum liability of the appellant under s. 647. The appellant
contends that only the Ohio's tonnage should be considered, because it
was the ship from which Captain Kelch's navigational negligence emanated. This
would result in lower liability than if the aggregate tonnage of both vessels
were considered, as the respondents contend.

My colleague
Iacobucci J. concludes in the appellant's favour that only the tonnage of the Ohio
should be considered in determining the amount of the limitation. The
principle he applies, as I understand it, is that only a vessel which is
"guilty", or independently contributed to the collision, can be
considered to be a "ship" for purposes of the limitation in s. 647 of
the Canada Shipping Act. Applying this principle, he concludes as a
matter of fact that the South Carolina was not a "guilty"
ship, characterizing it as "a helper tug not committing a fault of its own
or otherwise physically causing the impugned damage" (p. 000). This leads
him to the conclusion that the South Carolina should not be considered
in determining the amount of the limitation of liability under s. 647 of the Canada
Shipping Act.

With great respect,
I cannot agree with my colleague's statement of the governing principle, nor
with the resulting conclusion that the South Carolina was an
"innocent" ship. These differences lead me to the conclusion that
both vessels should be considered in determining the amount of the limitation
under s. 647 of the Canada Shipping Act.

The question is
fundamentally one of statutory interpretation. Two different lines of
interpretation exist on the authorities, which for purposes of convenience may
be termed the Canadian approach and the revised English approach. As I see it,
the jurisprudence may be summarized as follows.

Canadian and
English jurisprudence in the first part of this century uniformly took the view
that where two vessels owned by the same owner were involved in an accident due
to the navigational errors of the owner's employees, the tonnage for the
purpose of the owner's limitation of liability was both vessels: The Ran;
The Graygarth, [1922] P. 80 (C.A.); Owners of the M.S. Pacific Express
v. The Tug Salvage Princess, [1949] Ex. C.R. 230; Monarch Towing &
Trading Co. v. British Columbia Cement Co., [1957] S.C.R. 816.

In 1963, in obiter
comments in The Bramley Moore, [1963] 2 Lloyd's Rep. 429 (C.A.), a case
involving a single tug and a separately owned tow, Lord Denning, M.R.,
suggested that even if the tow had been owned by the same company as owned the tug,
the limitation would have been based on the tug alone, because that was the
only "negligent" ship. This fault-based approach was reluctantly
adopted in the case of London Dredging Co. v. Greater London Council (The
Sir Joseph Rawlinson), [1972] 2 Lloyd's Rep. 437 (Q.B. (Adm. Ct.)). These
two cases represent what I have called the revised English rule.

This Court
confirmed the traditional "aggregate tonnage" approach in 1975, after
the divergence of the English courts, although without mentioning the English
cases: Stein v. The Ship "Kathy K", [1976] 2 S.C.R. 802.

Where the two
vessels involved are a tug and a barge owned by the same owner, the two lines
of authority clearly produce divergent results. On the Canadian
"aggregate tonnage" view, the navigational error relates to both
vessels and both therefore serve as the basis for calculating the tonnage
relevant to the limitation. On the revised English view, the tug alone can be
said to be at fault, and tonnage for purposes of the limitation is confined to
the tug. The same result would seem to follow in a case like the present,
where two commonly owned tugs are involved in an accident caused by the
negligence of the owner's employee. On the Canadian approach, one would take
the "aggregate tonnage" of the two tugs. On the revised English
view, one would arguably consider only the tonnage of the tug or tugs which are
at fault.

American authority
lends support to the use of the Canadian "aggregate tonnage" approach
where two or more commonly owned tugs are affected by the same navigational
negligence. My colleague Iacobucci J. suggests that the American case of The
Alvah H. Boushell, 38 F.2d 980 (4th Cir. 1930), is distinguishable, and
that the broad language used by the Circuit Court of Appeals was obiter.
That may be so. This does not negate the fact that the court's comments on
using the combined tonnage of two tugs under common direction for the purposes
of calculating the liability limit amount to a restatement of the position
taken in American maritime law on this issue. Moreover, there is additional
American case law that is almost directly on point to the facts in the matter
at hand. In The Bordentown, 40 F. 682 (S.D.N.Y. 1889), two commonly
owned tugs had been engaged in towing a flotilla of canalboats when most of the
canalboats were lost in a heavy gale. The Bordentown was found liable
on the basis of the decision of the tow master, who was on board the Bordentown,
to attempt to cross an unsheltered area of water despite the dangerous wind and
sea conditions. The court went on to hold that in assessing the applicable
liability limit, both the Bordentown and the second tug, the Winnie,
had to be taken into account, stating at p. 687:

As
regards the vessels required by the statute to be surrendered in a case like
the present, there can be no doubt that the Bordentown is one of them. The
master of the tow was all the time on board of her, directing the navigation of
all. I have no doubt that the Winnie, also, must be included. At the time
when the master's fault arose, the Winnie was as much a part of the moving
power as the Bordentown, and was equally under the same direction. She
belonged to the same owners; and from the beginning to the end she was engaged,
in the owners' behalf, in the work of towing the other boats, precisely as the
Bordentown was engaged. It was immaterial on board which tug the master, for
the time being, was, or from which boat his orders were given. Both as related
to the owners of the tugs and as related to the owners of the boats in tow, the
Bordentown and the Winnie, in taking the tow through to Kills, were in effect
one vessel.

I am reluctant to
depart from the settled Canadian approach unless it is clearly wrong. I am doubly
reluctant given the rather shaky foundation on which the change is urged. As
I noted earlier in these reasons, Lord Denning's comments in The Bramley
Moore regarding a commonly owned tug and tow were obiter. More
importantly, a close reading of his reasons for judgment reveals what is in my
respectful view a fundamental flaw in his analysis on this point. At page 436,
Lord Denning states:

I
can see no logical reason for distinguishing cases when tug and tow are in the
same ownership from cases where they are in different ownership.

But in fact a "logical
reason" for this distinction may be found on the next page of Lord
Denning's reasons for judgment, where he states (in a passage also quoted in my
colleague's reasons):

The
principle underlying limitation of liability is that the wrongdoer should be
liable according to the value of his ship and no more. A small tug has
comparatively small value and it should have a correspondingly low measure of
liability, even though it is towing a great liner and does great damage.

This rationale does
not apply where the owner of the tug also owns the tow, as Kerr J. noted in The
Sir Joseph Rawlinson at pp. 440-41:

Thirdly,
Mr. Thomas submitted that there is nothing intrinsically anomalous in a result
which distinguishes between cases of common ownership and cases where the tug
and tow are in different ownerships. He said that when an owner is employing
(to use a neutral term) more than one of his ships in circumstances in which
more than one is involved in one collision, then there is nothing anomalous in
a result whereby his liability is higher than if only one ship had been
involved.

Here
again it seems to me that Mr. Thomas is correct in principle. The section is
based on the tonnage of a ship, which is intended to reflect her value and
size, so that it follows that the greater the tonnage, the greater the
potential limited liability. It therefore seems to me that there is nothing
anomalous in a result whereby an owner is under a greater liability, albeit
limited, if two of his ships are involved in a collision than if only one is
involved.

Although Kerr J. ultimately ruled that
the liability limit in that case was to be calculated on the basis of the tug's
tonnage only, he made it clear that had he not considered himself bound by Lord
Denning's dicta in The Bramley Moore he would have ruled the
liability limit was to be calculated on the basis of the combined tonnage of
the tug and tow. At page 446, he stated:

I
am not convinced, but it is not necessary to speculate about this, that if the
present case had reached the Courts before the decision and reasoning of The
Bramley Moore in the Court of Appeal, the legal position as I see it now
facing me in this Court would be the same. I decide this case in the
plaintiff's favour because I regard myself as bound by what was said in The
Bramley Moore and because I regard the matter as not being any longer res
integra in this Court. But for that decision I should have decided in
favour of the defendants on the basis of Mr. Thomas's arguments . . . .

Notwithstanding the
questionable pedigree of the revised English approach, the fact remains that if
the approach hitherto adopted in this country is incompatible with the wording
of s. 647 of the Canada Shipping Act or is less likely to fulfil the
section's purpose than the revised English approach, revision of the rule in
this country may be justified. It is therefore necessary to examine the
wording of the section and the implications of the alternative interpretations
with some care.

This brings me to
the question of whether s. 647 of the Canada Shipping Act accords with
the traditional Canadian view that in the situation of common ownership, both a
tug and tow are to be considered for purposes of setting maximum liability for
an accident involving the tow which was caused by navigational error of those
on board the tug. In my view it does. The words "that ship" in s. 647(2)(f),
which governs the limitation, refer us back to the opening words of s. 647(2),
"[t]he owner of a ship". Subsection (2)(d)(i) applies where
there is loss or damage caused to property, by "the navigation or
management of the ship", "whether on board that ship or not".
There is no requirement here that the ship itself have been
"negligent", nor that the negligent navigator have been on board the
ship which is used for purposes of the limitation. All that is required is
that there have been an act or omission in relation to the navigation or
management of a ship. This language is broad enough to encompass the
misdirection of a tow, and thus supports the long-standing Canadian position
that the tonnage of both tug and tow are to be considered for purposes of determining
the limitation on liability where an accident occurs as a result of a
navigational error.

Section 647(2)(d)(i)
clearly contemplates that where navigational errors are concerned, it
does not matter whether the negligent employee was on board or off a ship used
as the basis for calculating the limitation of liability. As I see it, s.
647(2)(d)(ii) deals with errors not enumerated in s. 647(2)(d)(i);
in those cases only must the negligent employee be on board the ship.

Where damage is
caused as a result of the negligent navigation of a flotilla as a whole, it is
questionable whether it is appropriate to say that the negligence attaches only
to the lead tug, and not as well to any other tug in flotilla that is owned by
the owner of the lead tug. The reasoning underlying the traditional Canadian
approach applies just as much to two commonly owned tugs as to a commonly owned
tug and tow, as the decision in The Bordentown demonstrates. The fault
of misnavigation of a flotilla cannot realistically be confined to a single
vessel; in fact it affects all the vessels which are involved in directing the
barge. The fact that the navigator happens to be standing on one vessel or the
other is incidental; what is essential is the direction which caused the
various vessels to act as they did. In fact, in the case at bar, the mistakes
of navigation caused all the tugs, including the South Carolina,
to move the barge too quickly. That movement, exacerbated by the mechanical
malfunction on the Ohio, caused the collision. So it seems to me
inaccurate to say that the South Carolina did not physically contribute
to the collision and the loss.

The traditional
Canadian approach of considering the aggregate involved tonnage of the owner
responsible for the accident for purposes of determining the limitation is also
supported by consideration of the purpose of s. 647 of the Canada Shipping
Act. The policy basis of the enactment of statutory liability limitations
for shipowners, including the limitation in the Canada Shipping Act, is
the promotion of shipping by limiting the potentially ruinous risk that would
otherwise be faced by shipowners. The liability limit in English law was
originally the value of the ship plus the value of the freight charge being
earned on the voyage. For a number of reasons, including the practical
difficulties of valuing individual ships, the basis for calculating the
liability limit was later changed to a set value per ton of the ship -- which
is of course the basis for calculating the liability limit under the Canada
Shipping Act. See R. G. Marsden, The Law of Collisions at Sea (11th
ed. 1961), at pp. 131-34, and J. J. Donovan, "The Origins and Development
of Limitation of Shipowners' Liability" (1979), 53 Tul. L. Rev.
999. Under either method, a shipowner's potential liability is limited to a
value based on the assets which have been devoted by the shipowner to the
operation in question.

Where the owner
owns more than one vessel involved in the operation, the assets directed at the
operation are not limited to one of the vessels, for example, the lead tug in
this case, but include all of them. The owner's assets employed in the
operation being higher, the amount of the limitation should proportionately be
higher, if the purpose of the section is to be respected. The rationale of the
limitation has nothing to do with which ship a tow master of a flotilla may be
physically situated on while making navigational decisions affecting the
flotilla as a whole. Moreover, it is often a matter of chance which vessel the
navigating officer is on. Should the owner's liability be reduced by reason of
the fact the navigator was on a small tug rather than a large barge?

The practical
implications of the alternative interpretations on conduct in the shipping
industry similarly support the traditional Canadian position. If I am not
mistaken, the rule adopted by Iacobucci J. may provide a disincentive to the
safe operation of flotillas. It has been suggested that a flotilla such as the
one in issue here is best operated from the bridge of the ship that is being
towed, the Widener. Typically a barge will have much more tonnage than
a tug. A rule basing the limitation on the tonnage of the
"directing" vessel would mean that a company which chose to place its
navigator on the barge would incur the risk of greater liability in the event
of an accident. So, even if that were the safest place for the navigator to stand,
it might be more prudent for the towing company to insist that he operate from
the smallest vessel it owns in the flotilla rather than the barge. On the
other hand, under the rule which has long represented the law in Canada, the
towing company's limitation on liability would be the same regardless of which
vessel in the flotilla the navigator directs it from. There is therefore no
disincentive to choose the safest vessel.

In addition,
excluding the tonnage of the tow for the purposes of determining the owner's
liability limit where the tug and tow are commonly owned can lead to the
absurdity that an owner of a ship can effectively reduce the applicable
liability limit by changing the method of the ship's propulsion. If the ship
moves under its own power, the liability limit applicable if the ship causes
damage in a collision will be based on the tonnage of the ship. But if the
ship is converted into a dumb barge, and thereafter propelled by a tug, the
revised English position would, if followed, result in the liability limit
being based on the tonnage of the much smaller tug. Why should whether a ship
is powered by internal engines or by a tug owned by the same party that owns
the ship make a difference to the applicable liability limit?

Finally on this
point, it should also be borne in mind that s. 647 is an extraordinary
provision, operating in derogation of the usual rights of recovery against
negligence causing damage to others. Unless it is clear that the limitation
should be reduced to a portion of the owner's assets involved in the collision,
it seems to me all the assets should be considered; the courts should derogate
from the usual rights of recovery only to the extent that the language and the
purpose of the provision clearly so require.

For all these
reasons, I am of the view that the traditional Canadian rule should be
affirmed, with the result that in cases of navigational error affecting the
conduct of a flotilla, all the vessels owned by the party responsible for the
error which are affected by the error, whether involved directly in the
accident or contributing causally to the accident, should be considered for
purposes of determining the maximum liability of that party.

Disposition

I would allow both
appeals and set aside the judgment of the Federal Court of Appeal in so far as
it asserts the inability of the appellant to limit its liability under s.
647(2) of the Canada Shipping Act. I would hold that the extent of the
limitation should be determined by the aggregate tonnage of the Ohio and
the South Carolina. In light of the divided success of the parties in
these appeals and in the overall conduct of this case, I would order that each
party bear its own costs of the proceedings in this Court and in the courts
below.

Appeals allowed,L'Heureux-DubéandMcLachlin JJ.dissenting
in part.

Solicitors for the
appellant: Martineau Walker, Montréal.

Solicitors for the
respondents: Lavery, de Billy, Montréal.

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